When Companies Supersize, Paychecks Shrink

Ms. Covert is contributing opinion writer who has previously covered mergers and acquisitions.

May 13, 2018

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T-Mobile CEO John Legere, left, and Sprint CEO Marcelo Claure on April 30, the day after announcing their merger.CreditRichard Drew/Associated Press

Anyone with a cellphone should have paid attention to the big merger news on April 29: T-Mobile and Sprint announced their intention to tie the knot after years of speculation. If it goes through, it will leave the country with just three major wireless carriers instead of four.

Less noticed, on the same day, about a dozen other corporate marriages were announced worldwide, worth a combined $120 billion. So far this year, $1.7 trillion worth of deals have been declared globally, higher than the pre-financial-crisis record set in 2007. This year’s big-dollar mergers in the United States range from Cigna’s purchase of Express Scripts, oil refiner Marathon Petroleum buying rival Andeavor, and Dr Pepper Snapple cozying up to Keurig Green Mountain. That’s in addition to AT&T’s play for Time Warner in 2016, CVS’s offer for Aetna, and Amazon swallowing up Whole Foods.

All this activity means fewer companies, which means less competition. For consumers, that can raise prices if the merged companies face less pressure to keep things cheap. That’s the main test these deals have to pass: whether regulators, including the Justice Department and Federal Trade Commission, think consumers will fare worse.

That narrow focus on consumer prices hides another, potentially more dangerous side effect. A growing body of evidence has found that as mergers thin the ranks of businesses, workers have fewer options when they look for jobs. That reduces their bargaining power and, in turn, is part of why wages have stagnated.

Sprint and T-Mobile have tried to pre-empt that criticism by saying that the combined company will not only keep prices low but also invest in building a 5G network, which they claim will create thousands of jobs. Analysts and unions argue that, actually, the deal will cost thousands of jobs.

And yet regulators will most likely ignore the issue of jobs completely when they decide whether to approve it. That has to change, and not only for this particular deal.

It used to be that when productivity grew, workers reaped some of the harvest. But since the mid-1970s, productivity has continued ever upward, while pay has only muddled along. One explanation is monopsony power, or the power of a few consolidated employers to hold down pay. When workers have few options for where they can seek employment, they can get backed into a corner, forced to accept lower wages just so they can get or hold on to a job.

Three economists recently studied job vacancies on the largest online jobs board from 2010 to 2013 and examined whether industry concentration affects the wages being offered. They found that most job markets in the United States are incredibly concentrated — a customer service representative in Boise, Idaho, for example, has only a few options for where she can work — and that this also hurts pay. The more an industry consolidates, the more wages drop.

A different group of economists looked at local labor markets and found the same thing: The more employers have consolidated, the lower the pay. Other researchers havefound that declining corporate competition has reduced the share of profits captured by workers.

According to one estimate, because the American economy is so dominated by a few large employers, employment in the United States is 5 to 18 percent lower than it would be otherwise, and wages are between 13 and 31 percent lower.

Concentration was once seen as dangerous in and of itself because it handed companies too much power. But in recent decades, antitrust regulators have effectively limited themselves to only one question: Will customers pay more? Today, that answer can’t provide a full picture of whether a merger will harm the economy.

Profs. Ioana Marinescu and Herbert Hovenkamp of the University of Pennsylvania argue that courts already have the power to challenge mergers on the grounds that they reduce labor market competition. The Clayton Act requires them to be blocked if they significantly “lessen competition” or “create a monopoly.”

But courts and regulators in recent decades have interpreted that narrowly to mean a monopoly in products, which can raise the prices that consumers pay. Senator Amy Klobuchar, Democrat of Minnesota, has introduced legislation that would explicitly require antitrust regulators to weigh whether a proposed deal would increase monopsony power and hurt workers.

American merger activity shows few signs of slowing down; filings increased 58 percent from 2010 to 2016. It’s time for regulators to step in before this massive concentration erodes workers’ bargaining power any further.

Bryce Covert is a contributor at The Nation and a contributing opinion writer.